Top 100 Independent Financial Advisors for 2011

Our Special Report on Independent Financial Advisors points out that independent financial advisors are coping with major challenges in the market: preserving clients' wealth and also seeking returns. Here, we look at how five are doing it.

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It is in times like these that a good financial advisor earns his keep. "Even the most sophisticated clients realize that when there is this much volatility, they need someone to bring it all together and be unemotional," says Steve Lockshin, the new No. 1 on Barron's annual listing of top 100 independent financial advisors.

Lockshin, who hails from Los Angeles-based Convergent Wealth Advisors, says his clients' moods can change every bit as quickly as the market's. One superrich investor, who only weeks ago was complaining that his returns were falling short of the broader market's, has suddenly begun praising Lockshin for his ability to navigate the selloff. "He's telling me how smart the firm is and what a great strategy we developed for him," says Lockshin.

Lockshin is certainly doing something right: He zoomed up from No. 4 on the list last year. Lockshin and his team, with more than $10 billion under management, rang the bell on all three of our ranking criteria: asset level, revenue generated for his firm and the general quality of his practice.

As a group, the top 100 increased their assets under management by 21%. Our listing doesn't break out how much of the gain came from investment performance rather than new business -- clients' investment goals are too varied to calculate meaningful averages -- but there is every indication that returns were strong. Why else would the group have a client retention rate of 98% for the year?

Just for starters, advisors need to be nimble and quick.
Dale Stephanos for Barron's

The clients are mostly quite wealthy, and even the most savvy of them often say they couldn't live without a good advisor. Gary Judis of Beverly Hills, Calif., soon realized he needed one after he retired as chairman of a mortgage bank in 1998.

"The speed, the sophistication were things that I just couldn't manage myself, even if I had wanted to work that hard during my retirement," he recalls. So he signed on with Debra Wetherby, now No. 19 on our roster, and has stuck with her ever since.

Each advisor has his or her own approach. Greg Thomas of Thomas Partners in Wellesley, Mass., shot up to No. 20 from No. 60 by focusing on dividend stocks, including stocks in the process of becoming tomorrow's sources of income. Here's what five others are envisioning.

Gary Ran

What do investors really want in these tumultuous times? It's simple, says Gary Ran. Whether they're widows with $1 million or retired CEOs with portfolios of $25 million or more, "They're asking us to keep them sane. It's hard for investors to stay focused in times like this, just when you need it the most, because there seems to be so much information. But information isn't knowledge."

Ran, who got into the business back in 1980, when the Dow was hovering around 700, is a dyed-in-the-wool contrarian. For instance, when inflation-protected Treasury securities, or TIPS, soared from $95 per $100 of face value to $117 in recent months, Ran began selling them from clients' portfolios, believing there would be plenty of opportunities later on to repurchase them more cheaply. He then plowed the proceeds into mortgages -- the dreaded asset class at the core of the financial crisis. He's been favoring mortgage REITs like American Capital Agency Corp., calling them well-positioned to bulk with borrowed money.

"The Fed has said money will continue to be almost free for many months to come, so there's little to no interest-rate risk," he says. The funds also use their leverage to snap up relatively safe, senior bank loans.

Maneuvers like that can pay off nicely for Ran's high-end clientele. Backed by a team of 40, he serves everyone from retirees trying to safeguard a few million in assets, to billionaires with complex estate plans extending far into the future.

Just about all of these clients can present big challenges, like the 58-year-old attorney who is trying to figure out how he can retire within the next seven years. "He has $7 million in assets, but he has six kids aged between 17 and 30. One of them wants to be a model; another wants to be an actor," says Ran. "He needs to make 7% a year to get to where he needs to be, but Treasuries are at around 2%, and stocks are scary. I have to be creative to get him there."

To that end, Ran, 53, draws on knowledge and contacts amassed during more than two decades of work as a financial advisor for Merrill Lynch and UBS. In some cases the sky is literally the limit: He has made a series of investments in aircraft leases that have generated cash returns north of 20% a year for his clients.

His most recent deal in this rarefied realm was to invest in the first Boeing 747-400 ever made, a 1989 aircraft out on lease to Delta Airlines for the next eight years. "Unless Delta goes out of business, that's going to be a great source of returns," he says with clear satisfaction.

When it comes to stocks, Ran likes to spread his bets through exchange-traded funds. Some faves: the Nuveen Multi-Strategy Income and Growth Fund, a preferred-stock fund, and the Calamos Strategic Total Return Fund, which blends blue-chip stocks and high-yield bonds to generate yields that currently top 7%.

Ran's final tip for staying sane: Avoid the "investment porn" peddled on cable news shows by the likes of Jim Cramer. "That just isn't helpful," he says. Boo-Yah, Schmoo-Yah.

Debra Wetherby

Debra Wetherby has three rules for her investment business. First, protect clients' assets. Second, "Refer to rule No. 1." As for growth in those portfolios? Well, that's way down the list at No. 3. "It's nice to have, but not at the expense of making sure there is limited exposure to any potential downside. Our clients already have wealth; our job is to ensure they keep it."

Still, simply maintaining wealth can be tricky these days. She thinks the market bounced back too rapidly from the 2008 financial crisis, so she has sought out funds that are willing to hold cash, use bonds as well as stocks, and even short stocks to hedge their holdings -- funds like IVA International, FPA Crescent and Hussman Strategic Growth. "When times are volatile, the hedges mean we can capture as much as 90% of the upside but get only 60% of the downside."

Wetherby lived in Ireland for a few years as a child and was so adept at numbers that her mother made her the family's foreign-exchange expert, translating their household accounts between dollars and Irish pounds. For sure, good training for a precocious youngster, but small change compared to her currency concerns today, when she is bracing for currency devaluation and–eventually–higher interest rates. That's easier said than done at time when bonds don't necessarily offer stability, and gold, long a favorite alternative to the dollar, is trading at dizzying heights.

The answers, Wetherby thinks, include investing in stocks that pay rich dividends and finding commodity-related investments that aren't dominated by gold.

Wetherby's choice is the Pimco Commodity Real Return fund, which keeps about a third of its assets in metals of all kinds, a third in agricultural commodities and another third in energy.

"Our most important theme is that global growth is going to be led by the emerging markets, not the developed markets," she says. "What we struggle to realize here is that this deleveraging process that we're going through isn't a short process, and in the meantime, the emerging markets–countries that didn't have that much leverage or toxic assets to deal with–can use cash and not debt to stimulate their economies."

She likes the Eaton Vance Parametric Structure Emerging Markets Fund, which offers a 12% weighting to frontier markets (like Vietnam, Nigeria, South Africa); it caps exposure to any one country to maintain diversity.

"We're moving into a complicated, multipolar world, and we need to change the way we think about investing to be able to address the risks and the opportunities adequately," Wetherby says.

And that, like most things in Wetherby's world, goes right back to Rule No. 1.

David Lees

Lees learned long ago that life is serious business. After he had a disappointing semester at college, his irritated father ordered the young man to spend the next semester working alongside him as a com- mercial fisherman, going after swordfish, scallops and tuna off the New Jersey coast. "I never got a 'B' again, in any other class, ever," he says, chuckling.

Lees, who is 50, knows that it's harder than ever to earn an 'A' in today's markets. There are simply no "good" options, he says. "Typical diversification doesn't work any more -- putting money into domestic stocks and international stocks; large and small stocks, doesn't offer real diversification in times of market distress. You can't think you're diversified for that reason."

Still, Lees has managed to spot a few decent fishing grounds, such as municipal bonds. "Contrary to what a lot of people were suggesting, that this was a dangerous asset class and should be avoided, high-quality munis have actually done very well this year," he points out.

"We're also hoping to pick up income and gains from very short-term convertible bond strategies," Lees adds. He believes that market has become mispriced as insurers -- long big players in convertibles -- scaled back their buying.

Lees and his clients also have fared well with hedge funds. Renaissance Equity Fund, one of the spinoffs from Jim Simons's legendary Renaissance Medallion hedge fund, has delivered double-digit gains for myCIO investors while the broader market has slumped. Lees also puts clients into a number of funds run by protégés of renowned investor Julian Robertson -- managers collectively known as "Tiger cubs."

Lees, who earned his wealth-management spurs in the world of large accounting firms, snares much of his business through Fortune 500 companies, which offer his services as a perk to executives. Among the takers: Brian Dupperault, CEO of Marsh & McLennan.

Now there's a big fish.

Mitchell Eichen

When Mitchell Eichen was growing up, his elders told him that the two best bets for a career were medicine and law. Since Eichen couldn't stand the sight of blood, he headed off for a law degree -- and that has made all the difference. Tax law, he says, is "at the root of every single kind of advice that you might end up giving a client."

He started out at a Bank of New York fee-only planning group for executives, then struck out on his own at age 30 as a general financial advisor. Twenty-four years later, Eichen oversees more than $1 billion in assets. Some clients, like Melvin Goodes, former CEO of drug giant Warner Lambert, signed on early and have been along for practically the whole ride.

The field is barely recognizable from those days. "Back in the '80s and '90s, it was all about what the hot stock themes were, about beating the index," Eichen says. "Now the name of the game is not trying to outperform on the upside, but [rather] trying not to lose money when the market goes down, and participating appropriately when the market goes up."

What that means in practice is that Eichen has cut his clients' exposure to stocks to about 44% of his portfolio, and all but a fraction of that amount is hedged. Right now, he likes to give clients exposure to U.S. stocks through exchange-traded funds and then limit the downside with options strategies. Those typically protect investors from the first $12 of losses on every $100 invested; after that, investors lose $1 for every $1 loss in market value. In exchange, investors cap their returns at 8% to 12%. "We're willing to give away a substantial part of the upside potential, because we don't think it really exists anyway," says Eichen.

To generate yield, Eichen turns to everything from a fund that invests in master limited partnerships (which earn income from oil and gas-oil well production) to the Lazard Emerging Income Fund, an actively managed portfolio of emerging-market holdings that's generating an annualized yield of 4.5% to 5%.

The result of this focus on risk control and yield was clear this summer: As the broad market fell 17% though early July, Eichen's assets under management were off just 4.59%. It doesn't take a tax lawyer to appreciate shelter like that.

Robert A. Clarfeld

If you want to become a top independent advisor, you have to do a lot more than hang out a shingle and hire a receptionist. Just look at Clarfeld's practice in suburban New York. With nearly 90 attorneys, accountants and other professional planners on staff, Clarfeld handles the full array of financial-planning needs for an elite group of clients and their families, each with assets of around $20 million.

Clarfeld, who started the business 30 years ago, thrives on complex tax issues, a skill that has attracted a loyal following of bank CEOs and other corporate chieftains. He helps them on everything from employment contracts to divorce agreements.

But as with most financial advisors, Clarfeld's biggest job right now is guiding investors through the volatile markets. Even after the recent turbulence, he says, his clients "are up nicely for the year." The worst year they experienced, he adds, was 2008, when on average clients lost 15%, compared with 40% or more on most major stock-market indexes.

"We are probably among the more conservative and pessimistic firms out there," Clarfeld says. In fact, his typical client's allocation to stocks is just 20% -- and that's counting large, small, domestic, international and emerging markets.

He is blunt as can be when delivering his reasons to those corporate-leader clients: "Corporate profits can only increase so much based on cost-cutting," he points out.

He avoids financial-services stocks entirely, fearful of the sector's volatility. What does he tell the bankers in his flock? "I avoid the topic when I'm talking to them."

Aiming to preserve capital rather than maximize returns, Clarfield has stashed about 60% of clients' money in bonds. He sticks to durations at about 3.5 years (down from five years not so long ago), seeing this as a segment where clients are well rewarded for the risks.

Favorite bond funds come from Pimco and Loomis Sayles. He also likes a Goldman Sachs Local Emerging Markets Debt Fund, which invests in emerging-market government bonds, and he's been known to hand over money to bond star Jeffrey Gundlach of DoubleLine Capital.

Lately, Clarfeld has been slashing allocations to TIPs in half, from levels that in some cases were as high as 8% of the portfolio, and plowing the proceeds into municipal bonds.

"You can't be dominated by fear; many general-obligation or special-purpose bonds for essential services are perfectly sound," says Clarfeld. "What worries me more is that municipal governments are going to make the unemployment problem worse by laying off people to solve their budget problems."

He's holding plenty of cash -- typically 10% of portfolios -- and stands ready to pounce on new opportunities. Says he: "You have to grab it when you see it."